Buying A Short Sale: Things To Know

When a seller’s debt on a home surpasses the property’s market value, they may choose to avoid foreclosure by selling their home as a short sale. This requires bank approval, since it means the lender will be accepting less for the home than what is owed. For buyers, short sales can spell opportunity because a distressed seller may hope to sell the property quickly for a discounted rate.

First, it’s important to know that the term “short sale” is a bit of a misnomer, because it’s typically a very long process. However, it begins just like any home purchase – with mortgage preapproval that tells the buyer how much house they can afford.

Once a prospective short sale buyer has identified a home they’d like to purchase, an offer is made through a real estate agent. This step takes longer in a short sale, because it isn’t up to the seller to accept or reject the offer. Rather, the bank must also accept, which can take several months or more. The bank will expect a fair market value offer, and real estate agents can be quite helpful here, as they have access to the sale process of other comparable homes.

Once an offer is accepted, the bank may require the prospective buyer to apply for a mortgage through their institution in order to ensure their creditworthiness. However, the short sale bank cannot require that the buyer finance through them, so the buyer still has options. As with any home purchase, buyers should shop around for the mortgage rate and terms that best suits their needs. Since short sales take time and most lenders only lock interest rates for 30 or 60 days, it’s also smart to ask lenders about the rate outlook for the near future.

Since short sales are lengthy, it behooves a buyer to take any steps possible to move the sale forward. This means acting quickly to address any requests from the seller’s lender, including appraisals and inspections. This way, the buyer won’t have any loose ends to tie up once the seller’s bank is ready to close.

Image via Flickr/patmcknight